GlobeNewswire Inc | May 20, 2021 04:01PM EDT

May 20, 2021

-- Record quarterly revenue of $5.58 billion, up 41 percent year over year -- Quarterly GAAP operating margin of 28.3 percent and non-GAAP operating margin of 31.7 percent, up 4.7 points and 7.0 points year over year, respectively -- Quarterly GAAP EPS of $1.43 and record non-GAAP EPS of $1.63, up 74 percent and 83 percent year over year, respectively

SANTA CLARA, Calif., May 20, 2021 (GLOBE NEWSWIRE) -- Applied Materials, Inc. (NASDAQ: AMAT) today reported results for its second quarter ended May2, 2021.

Second Quarter Results

Applied generated revenue of $5.58 billion. On a GAAP basis, the company recorded gross margin of 47.5 percent, operating income of $1.58 billion or 28.3 percent of net sales, and earnings per share (EPS) of $1.43.

On a non-GAAP adjusted basis, the company reported gross margin of 47.7 percent, operating income of $1.77 billion or 31.7 percent of net sales, and EPS of $1.63.

The company generated $1.19 billion in cash from operations and returned $952 million to shareholders including $750 million in share repurchases and $202 million in dividends.

Applied Materials record performance is underpinned by broad-based strength across our semiconductor businesses, said Gary Dickerson, President and CEO. We are confident in our ability to outperform our markets as large, secular trends create sustainable demand for semiconductors and our leadership in materials engineering becomes increasingly critical to deliver new chip technologies.

Quarterly Results Summary

Q2 FY2021 Q2 FY2020 Change (In millions, except per share amounts and percentages)Net sales $ 5,582 $ 3,957 41 %Gross margin 47.5 % 44.2 % 3.3 pointsOperating margin 28.3 % 23.6 % 4.7 pointsNet income $ 1,330 $ 755 76 %Diluted earnings per share $ 1.43 $ 0.82 74 %Non-GAAP Adjusted Results Non-GAAP adjusted gross 47.7 % 44.6 % 3.1margin pointsNon-GAAP adjusted operating 31.7 % 24.7 % 7.0margin pointsNon-GAAP adjusted net income $ 1,509 $ 817 85 %Non-GAAP adjusted diluted EPS $ 1.63 $ 0.89 83 %

Second quarter GAAP results included a $154 million deal termination fee paid per the terms of the Share Purchase Agreement with Kokusai Electric Corporation and KKR HKE Investment L.P., which reduced earnings per share by $0.17.

A reconciliation of the GAAP and non-GAAP adjusted results is provided in the financial tables included in this release. See also Use of Non-GAAP Adjusted Financial Measures section.

Business Outlook

In the third quarter of fiscal 2021, Applied expects net sales to be approximately $5.92 billion, plus or minus $200 million. Non-GAAP adjusted diluted EPS is expected to be in the range of $1.70 to $1.82.

This outlook for non-GAAP adjusted diluted EPS excludes known charges related to completed acquisitions of $0.01 per share, includes the normalized tax benefit of share-based compensation of $0.01 per share and a net income tax benefit related to intra-entity intangible asset transfers of $0.03 per share, but does not reflect any items that are unknown at this time, such as any additional charges related to acquisitions or other non-operational or unusual items, as well as other tax related items, which we are not able to predict without unreasonable efforts due to their inherent uncertainty.

Second Quarter Reportable Segment Information

Semiconductor Systems Q2 FY2021 Q2 FY2020 (In millions, except percentages)Net sales $ 3,972 $ 2,567 Foundry, logic and other 56 % 56 %DRAM 14 % 22 %Flash memory 30 % 22 %Operating income $ 1,542 $ 782 Operating margin 38.8 % 30.5 %Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 1,555 $ 798 Non-GAAP adjusted operating margin 39.1 % 31.1 %

Applied Global Services Q2 FY2021 Q2 FY2020 (In millions, except percentages)Net sales $ 1,203 $ 1,018 Operating income $ 358 $ 256 Operating margin 29.8 % 25.1 %Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 359 $ 260 Non-GAAP adjusted operating margin 29.8 % 25.5 %

Display and Adjacent Markets Q2 FY2021 Q2 FY2020 (In millions, except percentages)Net sales $ 375 $ 365 Operating income $ 65 $ 75 Operating margin 17.3 % 20.5 %Non-GAAP Adjusted Results Non-GAAP adjusted operating income $ 66 $ 78 Non-GAAP adjusted operating margin 17.6 % 21.4 %



Use of Non-GAAP Adjusted Financial Measures

Applied provides investors with certain non-GAAP adjusted financial measures, which are adjusted for the impact of certain costs, expenses, gains and losses, including certain items related to mergers and acquisitions; restructuring and severance charges and any associated adjustments; certain incremental expenses related to COVID-19; impairments of assets; gain or loss on strategic investments; loss on early extinguishment of debt; certain income tax items and other discrete adjustments. On a non-GAAP basis, the tax effect related to share-based compensation is recognized ratably over the fiscal year. Additionally, non-GAAP results exclude estimated discrete income tax expense items associated with U.S. tax legislation. Reconciliations of these non-GAAP measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are provided in the financial tables included in this release.

Management uses these non-GAAP adjusted financial measures to evaluate the companys operating and financial performance and for planning purposes, and as performance measures in its executive compensation program. Applied believes these measures enhance an overall understanding of its performance and investors ability to review the companys business from the same perspective as the companys management, and facilitate comparisons of this periods results with prior periods on a consistent basis by excluding items that management does not believe are indicative of Applied's ongoing operating performance. There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles, may be different from non-GAAP financial measures used by other companies, and may exclude certain items that may have a material impact upon our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

Webcast Information

Applied Materials will discuss these results during an earnings call that begins at 1:30 p.m. Pacific Time today. A live webcast and related slide presentation will be available at www.appliedmaterials.com. A replay will be available on the website beginning at 5:00 p.m. Pacific Time today.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding anticipated growth and trends in our businesses and markets, industry outlooks and demand drivers, technology transitions, our business and financial performance and market share positions, our capital allocation and cash deployment strategies, our investment and growth strategies, our development of new products and technologies, our business outlook for the third quarter of fiscal 2021 and beyond, the impact of the ongoing COVID-19 pandemic and responses thereto on our operations and financial results, and other statements that are not historical facts. These statements and their underlying assumptions are subject to risks and uncertainties and are not guarantees of future performance. Factors that could cause actual results to differ materially from those expressed or implied by such statements include, without limitation: the level of demand for our products; global economic and industry conditions; the effects of regional or global health epidemics, including the severity and duration of the ongoing COVID-19 pandemic; global trade issues and changes in trade and export license policies, including the recent rules and interpretations promulgated by U.S. Department of Commerce expanding export license requirements for certain products sold to certain entities in China; consumer demand for electronic products; the demand for semiconductors; customers technology and capacity requirements; the introduction of new and innovative technologies, and the timing of technology transitions; our ability to develop, deliver and support new products and technologies; the concentrated nature of our customer base;acquisitions, investments and divestitures; changes in income tax laws; our ability to expand our current markets, increase market share and develop new markets; market acceptance of existing and newly developed products; our ability to obtain and protect intellectual property rights in key technologies; our ability to achieve the objectives of operational and strategic initiatives, align our resources and cost structure with business conditions, and attract, motivate and retain key employees; the variability of operating expenses and results among products and segments, and our ability to accurately forecast future results, market conditions, customer requirements and business needs; and other risks and uncertainties described in our SEC filings, including our recent Forms 10-Q and 8-K. All forward-looking statements are based on managements current estimates, projections and assumptions, and we assume no obligation to update them.

About Applied Materials

Applied Materials, Inc. (Nasdaq: AMAT) is the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible a better future. Learn more at www.appliedmaterials.com.

Contact:

Ricky Gradwohl(editorial/media) 408.235.4676Michael Sullivan(financial community) 408.986.7977

APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended Six Months Ended(In millions, except per share May 2, April 26, May 2, April 26,amounts) 2021 2020 2021 2020Net sales $ 5,582 $ 3,957 $ 10,744 $ 8,119 Cost of products sold 2,929 2,208 5,742 4,512 Gross profit 2,653 1,749 5,002 3,607 Operating expenses: Research, development and 617 550 1,223 1,102 engineeringMarketing and selling 148 130 295 265 General and administrative 149 137 310 266 Severance and related charges 6 ? 158 ? Deal termination fee 154 ? 154 ? Total operating expenses 1,074 817 2,140 1,633 Income from operations 1,579 932 2,862 1,974 Interest expense 61 61 122 120 Interest and other income, net 27 7 45 29 Income before income taxes 1,545 878 2,785 1,883 Provision for income taxes 215 123 325 236 Net income $ 1,330 $ 755 $ 2,460 $ 1,647 Earnings per share: Basic $ 1.45 $ 0.82 $ 2.68 $ 1.80 Diluted $ 1.43 $ 0.82 $ 2.66 $ 1.78 Weighted average number of shares:Basic 918 917 917 917 Diluted 927 923 926 925

APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions) May 2, October 25, 2021 2020ASSETS Current assets: Cash and cash equivalents $ 6,305 $ 5,351 Short-term investments 460 387 Accounts receivable, net 3,375 2,963 Inventories 4,053 3,904 Other current assets 778 764 Total current assets 14,971 13,369 Long-term investments 1,569 1,538 Property, plant and equipment, net 1,768 1,604 Goodwill 3,479 3,466 Purchased technology and other intangible assets, net 127 153 Deferred income taxes and other assets 2,171 2,223 Total assets $ 24,085 $ 22,353 LIABILITIES AND STOCKHOLDERS? EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,116 $ 3,138 Contract liabilities 1,706 1,321 Total current liabilities 4,822 4,459 Long-term debt, net of current portion 5,450 5,448 Income taxes payable 1,138 1,206 Other liabilities 682 662 Total liabilities 12,092 11,775 Total stockholders? equity 11,993 10,578 Total liabilities and stockholders? equity $ 24,085 $ 22,353

APPLIED MATERIALS, INC.UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In millions) Three Months Ended Six Months Ended May 2, April 26, May 2, April 26, 2021 2020 2021 2020Cash flows from operating activities:Net income $ 1,330 $ 755 $ 2,460 $ 1,647 Adjustments required to reconcilenet income to cash provided by operating activities:Depreciation and amortization 97 91 191 185 Severance and related charges 1 ? 149 ? Share-based compensation 84 71 191 164 Deferred income taxes (4 ) (11 ) 24 19 Other (15 ) 7 (15 ) 22 Net change in operating assets (306 ) (278 ) (392 ) (415 )and liabilitiesCash provided by operating 1,187 635 2,608 1,622 activitiesCash flows from investing activities:Capital expenditures (204 ) (71 ) (325 ) (173 )Cash paid for acquisitions, net ? (27 ) (12 ) (27 )of cash acquiredProceeds from sales and 266 667 624 1,035 maturities of investmentsPurchases of investments (281 ) (404 ) (722 ) (832 )Cash provided by (used in) (219 ) 165 (435 ) 3 investing activitiesCash flows from financing activities:Debt borrowings, net of issuance ? 1,498 ? 1,498 costsProceeds from common stock 86 76 86 91 issuancesCommon stock repurchases (750 ) (199 ) (750 ) (399 )Tax withholding payments for (17 ) (10 ) (159 ) (163 )vested equity awardsPayments of dividends to (202 ) (193 ) (403 ) (385 )stockholdersCash provided by (used in) (883 ) 1,172 (1,226 ) 642 financing activitiesIncrease in cash, cashequivalents and restricted cash 85 1,972 947 2,267 equivalentsCash, cash equivalents andrestricted cash 6,328 3,424 5,466 3,129 equivalents?beginning of periodCash, cash equivalents andrestricted cash equivalents? end $ 6,413 $ 5,396 $ 6,413 $ 5,396 of period Reconciliation of cash, cashequivalents, and restricted cash equivalentsCash and cash equivalents $ 6,305 $ 5,281 $ 6,305 $ 5,281 Restricted cash equivalentsincluded in deferred income taxes 108 115 108 115 and other assetsTotal cash, cash equivalents, and $ 6,413 $ 5,396 $ 6,413 $ 5,396 restricted cash equivalents Supplemental cash flow information:Cash payments for income taxes $ 299 $ 199 $ 409 $ 281 Cash refunds from income taxes $ 4 $ 4 $ 23 $ 5 Cash payments for interest $ 68 $ 76 $ 103 $ 110

APPLIED MATERIALS, INC.UNAUDITED SUPPLEMENTAL INFORMATION

Corporate and Other

(In millions) Q2 FY2021 Q2 FY2020Unallocated net sales $ 32 $ 7 Unallocated cost of products sold and expenses (174 ) (117 )Share-based compensation (84 ) (71 )Severance and related charges (6 ) ? Deal termination fee (154 ) ? Total $ (386 ) $ (181 )

Additional Information

Q2 FY2021 Q2 FY2020 Net Sales by Geography (In millions) United States $ 489 $ 331 % of Total 9 % 8 %Europe $ 229 $ 181 % of Total 4 % 5 %Japan $ 442 $ 467 % of Total 8 % 12 %Korea $ 1,428 $ 753 % of Total 25 % 19 %Taiwan $ 1,041 $ 1,029 % of Total 19 % 26 %Southeast Asia $ 109 $ 58 % of Total 2 % 1 %China $ 1,844 $ 1,138 % of Total 33 % 29 % Employees (In thousands) Regular Full Time 24.8 22.7

APPLIED MATERIALS, INC. UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended Six Months Ended(In millions, except May 2, April 26, May 2, April 26,percentages) 2021 2020 2021 2020Non-GAAP Adjusted Gross ProfitReported gross profit - $ 2,653 $ 1,749 $ 5,002 $ 3,607 GAAP basisCertain items associated 7 8 15 17 with acquisitions^1Certain incrementalexpenses related to ? 8 12 8 COVID-19^2Other charges 2 ? 2 ? Non-GAAP adjusted gross $ 2,662 $ 1,765 $ 5,031 $ 3,632 profitNon-GAAP adjusted gross 47.7 % 44.6 % 46.8 % 44.7 %marginNon-GAAP Adjusted Operating IncomeReported operating income $ 1,579 $ 932 $ 2,862 $ 1,974 - GAAP basisCertain items associated 12 13 25 26 with acquisitions^1Acquisition integration 11 21 35 34 and deal costsCertain incrementalexpenses related to ? 10 24 10 COVID-19^2Severance and related 6 ? 158 ? charges^3Deal termination fee 154 ? 154 ? Other charges 6 ? 6 ? Non-GAAP adjusted $ 1,768 $ 976 $ 3,264 $ 2,044 operating incomeNon-GAAP adjusted 31.7 % 24.7 % 30.4 % 25.2 %operating marginNon-GAAP Adjusted Net IncomeReported net income - $ 1,330 $ 755 $ 2,460 $ 1,647 GAAP basisCertain items associated 12 13 25 26 with acquisitions^1Acquisition integration 12 21 36 34 and deal costsCertain incrementalexpenses related to ? 10 24 10 COVID-19^2Severance and related 6 ? 158 ? charges^3Deal termination fee 154 ? 154 ? Realized loss (gain) onstrategic investments, 6 5 4 7 netUnrealized loss (gain) onstrategic investments, (26 ) 2 (32 ) 4 netOther charges 6 ? 6 ? Income tax effect ofshare-based compensation^ 6 8 (23 ) (25 ) 4Income tax effectsrelated to intra-entity 17 16 37 37 intangible assettransfersResolution of prioryears? income tax filings (10 ) (3 ) (13 ) (4 ) and other tax itemsIncome tax effect of (4 ) (10 ) (45 ) (15 ) non-GAAP adjustments^5Non-GAAP adjusted net $ 1,509 $ 817 $ 2,791 $ 1,721 income

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets. 2 Temporary incremental employee compensation during the COVID-19 pandemic. 3 The severance and related charges primarily related to a one-time voluntary retirement program offered to certain eligible employees. 4 GAAP basis tax benefit related to share-based compensation is recognized ratably over the fiscal year on a non-GAAP basis. 5 Adjustment to provision for income taxes related to non-GAAP adjustments reflected in income before income taxes.

APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended Six Months Ended(In millions, except per share May 2, April May 2, Aprilamounts) 2021 26, 2021 26, 2020 2020Non-GAAP Adjusted Earnings Per Diluted ShareReported earnings per diluted share - $ 1.43 $ 0.82 $ 2.66 $ 1.78 GAAP basisCertain items associated with 0.01 0.01 0.02 0.02 acquisitionsAcquisition integration and deal 0.01 0.02 0.03 0.04 costsCertain incremental expenses related ? 0.01 0.02 0.01 to COVID-19Severance and related charges 0.01 ? 0.13 ? Deal termination fee 0.17 ? 0.17 ? Realized loss (gain) on strategic 0.01 0.01 ? 0.01 investments, netUnrealized loss (gain) on strategic (0.03 ) ? (0.02 ) ? investments, netIncome tax effect of share-based 0.01 0.01 (0.02 ) (0.03 )compensationIncome tax effects related tointra-entity intangible asset 0.02 0.02 0.04 0.04 transfersResolution of prior years? income tax (0.01 ) (0.01 ) (0.01 ) (0.01 )filings and other tax itemsNon-GAAP adjusted earnings per $ 1.63 $ 0.89 $ 3.02 $ 1.86 diluted shareWeighted average number of diluted 927 923 926 925 shares

APPLIED MATERIALS, INC.UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED RESULTS

Three Months Ended Six Months Ended May 2, April May 2, April 26,(In millions, except percentages) 2021 26, 2021 2020 2020Semiconductor Systems Non-GAAP Adjusted Operating IncomeReported operating income - GAAP $ 1,542 $ 782 $ 2,803 $ 1,697 basisCertain items associated with 10 10 20 20 acquisitions^1Acquisition integration costs ? ? (2 ) ? Certain incremental expenses ? 6 12 6 related to COVID-19^2Other charges 3 ? 3 ? Non-GAAP adjusted operating income $ 1,555 $ 798 $ 2,836 $ 1,723 Non-GAAP adjusted operating margin 39.1 % 31.1 % 37.7 % 32.0 %AGS Non-GAAP Adjusted Operating IncomeReported operating income - GAAP $ 358 $ 256 $ 690 $ 534 basisCertain incremental expenses ? 4 8 4 related to COVID-19^2Other charges 1 ? 1 ? Non-GAAP adjusted operating income $ 359 $ 260 $ 699 $ 538 Non-GAAP adjusted operating margin 29.8 % 25.5 % 29.6 % 26.7 %Display and Adjacent Markets Non-GAAP Adjusted Operating IncomeReported operating income - GAAP $ 65 $ 75 $ 130 $ 113 basisCertain items associated with 1 3 2 6 acquisitions^1Certain incremental expenses ? ? 1 ? related to COVID-19^2Severance and related charges^3 ? ? 8 ? Non-GAAP adjusted operating income $ 66 $ 78 $ 141 $ 119 Non-GAAP adjusted operating margin 17.6 % 21.4 % 17.9 % 17.1 %

1 These items are incremental charges attributable to completed acquisitions, consisting of amortization of purchased intangible assets.2 Temporary incremental employee compensation during the COVID-19 pandemic.3 The severance and related charges related to workforce reduction actions globally across the Display and Adjacent Markets business.

Note: The reconciliation of GAAP and non-GAAP adjusted segment results above does not include certain revenues, costs of products sold and operating expenses that are reported within corporate and other and included in consolidated operating income.

UNAUDITED RECONCILIATION OF GAAP TO NON-GAAP ADJUSTED EFFECTIVE INCOME TAX RATE

Three Months Ended(In millions, except percentages) May 2, 2021 Provision for income taxes - GAAP basis (a) $ 215 Income tax effect of share-based compensation (6 ) Income tax effects related to intra-entity intangible asset (17 ) transfersResolutions of prior years? income tax filings and other tax 10 itemsIncome tax effect of non-GAAP adjustments 4 Non-GAAP adjusted provision for income taxes (b) $ 206 Income before income taxes - GAAP basis (c) $ 1,545 Certain items associated with acquisitions 12 Acquisition integration and deal costs 12 Certain incremental expenses related to COVID-19 ? Severance and related charges 6 Deal termination fee 154 Realized loss (gain) on strategic investments, net 6 Unrealized loss (gain) on strategic investments, net (26 ) Other charges 6 Non-GAAP adjusted income before income taxes (d) $ 1,715 Effective income tax rate - GAAP basis (a/c) 13.9 % Non-GAAP adjusted effective income tax rate (b/d) 12.0 %